My NPR Debut

was pretty uninspired. In the middle of a four-minute segment on the public's fears about jobs, I get about 15 seconds to talk about "make-work bias," which is the term my co-blogger uses for the public's fear about processes that improve productivity, such as international trade. Alan Blinder's comments, about how the public under-estimated the strength of the economy in 1992 (the year of "it's the economy, stupid," where Clinton defeated Bush the elder), are more interesting.

Comments and Sharing

The leftist establishment conned the American voters during the 1992 election. It was actually in very good shape---but they desired to replace President Bush 41 with a Democrat. This despicable nonsense also occurred in 2004. Roughly 40% of the American population thought we were experiencing an economic recession on the day of the election! It’s near miraculous that the present White House occupant defeated Senator Kerry.

Recession has become an almost meaningless term as the economy can grow even while employment shrinks or stagnates. When people are asked if we are in recession or not, they apply this to themselves and answer whether they are in recession or not. It actually takes substantial growth to support a growing population, broaden employment opportunities, and increase real living standards which most consider doing well is all about.

Well, employment certainly matters, but recession is defined in terms of changes in real income. It is true that real per capita income has been rising. However, as has been very widely publicized, but goes unremarked by David Thomson, median real per capita wages have been stagnant, indeed have drifted downward. This is because we have had so much of the growth benefits going to the top of the wage distribution, and the very top, like the top 1%.

Arnold has of course made his distaste for all those riffraffy happiness studies known. Perhaps one reason is that reported happiness in the US is going down. It peaked in 1956, the year before the year of maximum births in the US in its history, guess what folks were doing in 1956? And yes, the happiness research does support that sex makes people happy.

One reason seems to be this problem of perceived distribution, that people rate themselves compared to others, and when they see that top 1% doing better and better when they really are not, and that median number means that the majority is not, then it is not surprising that we see such a dismal perception about the economy so widespread out there.

However, as has been very widely publicized, but goes unremarked by David Thomson, median real per capita wages have been stagnant, indeed have drifted downward

However, as is very true but has been not so publicized, especially not by Barkley Rosser, median real per capita compensation has been going up as well. The cost of benefits has continued to increase, some government-mandated, and the increase in benefits has crowded out increase in pure wages.

Now, some people may not believe that the value to the worker of some of those benefits has increased at the same time as the dollar cost. In that case, certainly it makes sense to pressure the companies to drop the benefits and pay the cost in wages instead?

Yet, oddly enough, many of the people who cry the loudest for more government-mandated benefits also complain about median wages being stagnant as benefits take up a larger share of compensation.

>One reason seems to be this problem of perceived distribution, that people rate themselves compared to others, and when they see that top 1% doing better and better when they really are not,

I am not interested in dragging the economy down because some people are jealous. Everyone that works hard in this country moves up the distribution as they age and become more experienced. The fact that he median income/compensation has remained relatively unchanged in real terms means very little.

The ability to create the American dream and do well for yourself keeps going up. Unemployment keeps going down, making it all that much faster to climb the American-dream-ladder. Prices keep going down as new technology makes life nicer and easier, and luxury and holidays nicer and more possible and plentiful. etc.

Those in lower quintiles in one year are in higher ones the next. AARP shows that most elderly are wealthy and have investments. There is a larger investor class and home-ownership rate and people are better off than ever before.

Take your liberal jealousy boo-hoo and go live in Sweden or France where they will pamper you and punish the innovative and cut working hours so that nobody can do any better than you are doing.

Well, as I know I am out of line with the general line here, I am not going to go on about this much, but will respond briefly.

John Thacker,

Your suspicion is correct. The main driver on that benefit side has been medical care, a much discussed item on this list. Undoubtedly it has risen in cost. I will simply note, again, that the case that the US has the best medical care system is not easy to defend. We pay by far more than anyone else, but have lousy life expectancy and infant mortality rates. Dumping medical benefits and raising wages is not going to help on that one very much.

liberty,

Frankly, I personally do not give a damn what someone else has. I do, however, happen to edit a journal that is one of the major outlets for happiness research in economics, so I do know a bit about what I speak of. I agree that all these whiney jealous people probably should grow up and appreciate that they have flush toilets and so on and so forth. But, the hard evidence is certainly there that increasing inequality, which is undeniably occurring in the US however one measures it, is making a lot of people less happy, unless one wants to simply deny any validity to these studies, which is certainly a philosophically valid position.

BTW, your characterization of how people are automatically moving up and all that is also a bit off, but I shall not go on further except to note that there is also an accumulating pile of evidence that socioeconomic mobility in the US is now on the decline and is indeed comparing unfavorably with that in some of those awful European countries.

>I agree that all these whiney jealous people probably should grow up and appreciate that they have flush toilets and so on and so forth.

And a higher absolute standard of living than not only in the past but than in other countries - if you want to compare. So the basolute standard is *high* by any definition, so why should one you care if someone else's in your country is even higher?

> But, the hard evidence is certainly there that increasing inequality, which is undeniably occurring in the US however one measures it, is making a lot of people less happy, unless one wants to simply deny any validity to these studies, which is certainly a philosophically valid position.

My point is that they should not be unhappy about it and we should not change anything to make them happy. I don't think people on welfare are really *happy* either, do you? I would be happier in a job than on welfare. I don't really buy into the happiness syudies for that reason - if inequality makes some jealous folk unhappy then should we drag everyone down to a lower level to make them happy? Then people, not knowing what they are missing, might all be happy to be half as wealthy? Or should be dump all those unhappy people on welfare rolls, so that they can be poor for their whole lives instead of a few, because they might be happier?

>BTW, your characterization of how people are automatically moving up and all that is also a bit off, but I shall not go on further except to note that there is also an accumulating pile of evidence that socioeconomic mobility in the US is now on the decline and is indeed comparing unfavorably with that in some of those awful European countries.

Actually, I have researched this quite a bit and those studies do not disprove what I say at all.

As you say I was discussing people generally "moving up" not some precise defined term of "economic mobility" which is what the studies you mention discuss. This will become clear as I go.

First, you must recognize that there are a few things that *must* be kept in mind when comparing mobility between the US and Europe (and with ourselves in the past and so forth).

1. The unemployment rate and whether people without jobs are included in the study.

2. The defintion of mobility: does the study look at all income movement (or wealth if not income, most are income) or does it follow the movement and then compare the individual against a subset of the population.

3. In absolute terms our mobility is greater, because our spectrum is larger. The top quintile in Sweden is about the same as our middle quintile. Hence a one quintile move is a larger dollar move here than in Sweden.

(you also must check whether only those paying taxes are included which is a smaller subset than only those working)

Most studies look at people with income and many therefor ignore the unemployed. Considering the vast difference in comparable employment (using OECD employement and unemployment numbers) between the US and Europe, this is a major factor.

As for the econd point, this is the main one that I wish to make against the studies you (presumably) refer to. As i have seen the studies that showing falling US mobility and low US mobility compared to Europe, they all have one thing in common: they track young people from their first jobs to the jobs they have 15 years later and then they compare the 35-40 year old at the end of the study ONLY WITH OTHERS OF THE SAME AGE.

At 20, many people are in the bottom quinitle - THAT IS THE VAST MAJORITY OF OUR POOR - YOUNG PEOPLE.

At 40, most people in America have made it up to the 3rd or 4th quintile.

Yet they create a new set of quintiles, in these studies, of only people of age 40 to compare the participent against. According to the new quintile, many are still in the bottom quintile - but what is that bottom quintile? It could be $50,000 /year. It could be twice what they make in France.

They say that this allows us to see mobility from relatively poor to relatively rich. In other words, if I am a chinese immigrant ans start with a $5/job and work my way up to where I own a restauarant and have an income of $50k/yr, I will not be seen as having experienced "mobility" if others of my age earn $60k/yr and $80k/yr on the average. Similarly if I am a 20 year old starting out with a crap internship job or waitress job and I'm in the bottom quintile and I end up with a $60k job, they will say that I only moved one quintile, because some others by age 40 had done better.

Perhaps we don;t have the kind of mobility that they want to see - but our bottom quintile at the start are mostly kids and people with tip-job and things like that, and we all end up better off at the end. In Europe they have greater mobility across a much smaller spectrum - their top quintile is like out third quintile - and you may not be able to predict as well where someone will start and end. This is what they see as important. But what if you start at 20k a year and end at 40k a year and that is considered a three-quintile move. In the US you start at 20k and end at 40k and that is considered a one quintile move (both because of the spectrum and because of the comparison against only older individuals)?

The American dream is controlled against in those studies because they ignore the movement that comes with age and experience. If you compare using the same base for the quintiles - the whole population - instead of an age-based change in income-relativity, and if you look at dollar mobility not just relative mobility, you'd see that the US has much greater income mobility.

As the Urban Institute explains about the studies that show great mobility in the US - note that the definition they use is much closer to the one I implied above (moving up as you age):

There are two additional studies that find a degree of earnings mobility that is much greater than that reported in any of the above studies: U.S. Department of Treasury (1992) and Cox and Alm (1996). ...

The Treasury study uses income tax return data between 1979 and 1988, tracking the adjusted gross income of a group of households that paid income taxes in all ten years examined. The study finds that 86 percent of individuals who were in the bottom quintile in 1979 had moved up by 1988. An individual in the bottom quintile in 1979, in fact, was more likely in 1988 to be found in the top quintile than in the bottom one.

The impressive degree of mobility found in the Treasury study has been attributed largely to two factors. First, the restriction of the sample to only those households that paid taxes in all ten years introduced a bias toward the economically successful, as only half of all households met this criteria. 13 Second, the study compared the 1988 incomes of those in the sample to the incomes of the population as a whole in 1988, thereby capturing the natural tendency of earnings to increase as individuals grow older, and identifying this as economic mobility. 14 That is, the average income of the sample would be expected to rise each year simply as a result of the individuals in the sample growing older and gaining more work experience. The average income of the population as a whole, however, would be expected to remain constant. 15 To count this increase in income as a component of "mobility" is to use a significantly different definition of mobility than was employed in the other studies discussed above.16 ...

Similarly, Cox and Alm (1996) find significantly higher levels of mobility than in most previous studies. They use the PSID to examine individual incomes between 1975 and 1991 for individuals who were age 16 or over in 1975. 17 They find that only 5.1 percent of individuals in the lowest quintile in 1975 remain in that quintile in 1991, while 29 percent of such individuals are in the highest quintile in 1991.

Like the Treasury study, Cox and Alm find extremely high levels of mobility in part because of the comparison group that determined the quintiles that they used. Most notably, they too compare the incomes of their sample (when everyone in the sample was over the age of 32) to the income of the population as a whole (in this case, including everyone over the age of 16). As a result, they too capture the natural increase in incomes with age and identify it as economic mobility. 18

But that is how I defined the mobility above, which you said recent studies would disprove. They do not. They only disprove the other definition of mobiliy defined as moving up compared with others of the same age. But I never said anything about that - I only said in our economy people get welathier as they get older, which has never been disproven and in fact is easily shown.

Sorry, I was quoting for longer than the tag made it bold... that whole section with footnotes was a quote from the Urban Institute, the article is linked above.

The rest of what I claim can be confirmed with OECD or LIS data - eg the difference in quintiles in absolute terms etc. You can also read my ramblings here and here with some charts and data.

[N.B. from Econlib Ed.: I fixed the bolding problem for you. MT's software requires that you cannot nest new paragraphs inside HTML tags such as b, i, blockquote, etc. (You can nest those tags inside paragraphs.) I suppose the garbling of intent does give a feedback to our more thoughtful site-users about keeping their quotations to the minimum necessary to support their point, a goal we encourage! However, the history of which tags you can officially nest goes back to a computer-coding battle that began in the 1960s and '70s, a battle won by those who prefer standardization over individuality. But I digress!--L.L.]

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